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SEC charges Siebel with disclosure breach--again

Siebel Systems charged with breaking disclosure laws two years after being fined for similar violation.

Siebel Systems was hit with a U.S. Securities and Exchange Commission lawsuit Tuesday over allegations that it violated fair-disclosure laws--for a second time in two years.

The company, along with Kenneth Goldman, Siebel's chief financial officer, and Mark Hanson, Siebel's senior vice president of corporate development and former investor relations head, were named in the SEC lawsuit. The lawsuit, filed in the U.S. District Court for the Southern District of New York, alleges that the parties violated Regulation FD, which prohibits public companies from selectively disclosing nonpublic, material information to a limited group of people before disclosing the same information to the general public.

This marks the second time Siebel has been hit with such a lawsuit. In late 2002, the company paid a $250,000 fine to settle similar allegations under Regulation FD.

After the commission entered its cease-and-desist order in 2002 for the first case, Tom Siebel, the company's founder and then chief executive, appointed Hanson as head of investor relations.

"Siebel...directed Hanson to ensure that the company did 'everything....possible' to comply with Regulation FD," according to the lawsuit. "The company did little to improve its compliance with Regulation FD. Neither Hanson nor his investor relations staff received any formal training regarding Regulation FD. Nor did Hanson promulgate a formal company policy regarding compliance with Regulation FD."

An SEC official said the agency doesn't usually have to make its point on this issue more than once.

"Most respondents take the commission's orders seriously, but we have had some cases where we've sought additional relief," said Toni Chion, associate director of the SEC's enforcement division. "It does happen, but for the most part, it doesn't. It's not typical."

Last year, the company allegedly violated disclosure securities laws again, shortly following its first-quarter earnings results in April. At the time, the company discussed the difficulty of the market and predicted that its second-quarter revenues would be higher than the previous quarter. Siebel, at the time, declined to answer analysts' questions concerning whether a large proportion of the second-quarter revenues would come from deals just missed being posted in the first quarter.

But a week later, Goldman and Hanson allegedly provided a select group of institutional investors with information about the second quarter that wasn't provided to the public.

During a meeting with investment firm Alliance Capital Management, Hanson and Goldman allegedly disclosed that "Siebel's activity levels were 'better' and that new deals were coming back into the pipeline," according to the lawsuit. Siebel's chief financial officer also allegedly disclosed that the company had about $5 million in deals in its pipeline.

Goldman allegedly made similar statements during a private dinner meeting with institutional investors at Morgan Stanley's New York office, according to court documents.

"These statements materially contrasted with the public statements that Thomas Siebel had made during the April 4 and (April) 23 conference calls," the lawsuit states, which noted that several of the investors at these private meetings purchased large blocks of stock the following day.

Siebel's stock rose 8 percent the day after the private meetings, under heavy volume trading. The company began receiving calls concerning rumors of what was said at the Morgan Stanley dinner.

Hanson consulted with Siebel's corporate attorney about whether to issue a public statement but in those discussions allegedly failed to tell the attorney that Goldman had allegedly discussed the company's pending orders.

Siebel and its attorneys did not immediately return comment. Hanson is currently on a leave until September, according to a message on his office voicemail.

Since Regulation FD took effect in October 2000, only five cases have risen, Chion said. And of those five, two have resulted in a paid penalty: Siebel, with a $250,000 fine, and Schering-Plough, which reached a $1 million settlement with the SEC.